About Currency Currents

With Currency Currents, you can stay tuned-in to our current global-macro view and our analysis of key investment themes driving currency prices.

We consistently focus on the key asset classes responsible for the flow of global capital -- including equities, fixed income, commodities and, of course, currencies.

Nothing is off limits to us in this free-wheeling look at the markets. Some days you’ll receive ramblings on trading psychology, while other days we may take an academic approach in explaining esoteric economic issues. Ultimately we have one goal in mind: to help you get a handle on the key investment themes driving global capital flow. Because if you know where the money is going, it increases the probability that your position in the market will be a profitable one.

Who is Jack the Pipper?

Jack is founder and president of Black Swan Capital LLC. He has also
operated a discretionary money management firm specializing in global
stock, bond, and currency asset management for retail clients. In
addition, he was general partner in a firm specializing in currency
futures and commodities trading. Neither firm is now in operation.

Prior to entering the investment arena, Jack worked in various
corporate finance positions. He has written extensively on the subject
of global currencies and international economics.

Two Kinds of Dumb …

Commerzbank analysts see any euro recovery after the rescue deal agreed for Greece as short-lived. Key details of the package are missing, they say, particularly the conditions that would be imposed on Greece. Investors may worry the ECB “might sacrifice its principles”, especially as it has already caved in on collateral rules. The market may be concerned normalization of financial policy could be postponed, while conclusion the ECB is giving consideration to “runaways” rather than aligning policies with the whole of the EZ “could stoke inflation fears”. Either is “poison for the euro”, they say. (Reuters)

TOKYO, April 13 (Reuters) – A group of Japanese ruling party lawmakers is calling on the government to try to push down the yen to around 120 yen to the dollar to help beat deflation, a draft proposal showed on Tuesday, sending the yen sharply lower.

BEIJING, April 13 (Reuters) – China’s four largest banks could face a capital shortfall of 480 billion yuan ($70.3 billion) over the next five years, Industrial and Commercial Bank of China President Yang Kaisheng said in remarks published on Tuesday.

It will be difficult for banks to rely exclusively on raising money in markets for replenishing their capital, Yang said, though he did not mention any alternatives.
Some analysts think the government, which bolstered the country’s biggest commercial lenders through aggressive recapitalisation over the past decade, will need to inject more cash in them.

Chinese banks are under pressure to raise money to repair their stretched balance sheets after lending a record 9.6 trillion yuan last year, when the government called on them to fuel the economy with easy credit.

BANGKOK, April 13 (Reuters) – Thai "red shirt" protesters threatened on Tuesday to march on an army barracks where Prime Minister Abhisit Vejjajiva has been based after the Election Commission unexpectedly recommended his party be dissolved.

Abhisit, who came to power in 2008 when the army brokered a deal in parliament, would have to step down if the Constitutional Court, following the Election Commission’s findings, found his Democrat Party guilty of funding irregularities.

The red shirts, who want Abhisit to quit now, said they would step up their protest, after their month-long rally turned violent on Saturday, with plans to send out hundreds of motorcyclists handing out leaflets and pictures from the clashes.

Quotable

“Look, mister, there’s … two kinds of dumb, uh … guy that gets naked and runs out in the snow and barks at the moon, and, uh, guy who does the same thing in my living room. First one don’t matter, the second one you’re kinda forced to deal with.”

George, Hooisers

FX Trading – Two Kinds of Dumb …

Minus the chance that some lunatic is streaking through your living room, I think the pearls of wisdom in the above quotable can easily be applied to so many real-life situations these days.

I’ll apply it to one …

First, say beautiful Canada went and did something totally ridiculous – fiscally, monetarily, or whatever – that resulted in a major, lasting blow to their economy. Would the US suffer the embarrassment and repercussions from its neighbor’s economic indiscretion?
Well, seeing that Canada is the US’s largest trading partner, I’m sure the calamity would not go completely unnoticed on the south side. But whose responsibility is it to get Canada’s house back in order? Certainly not that of the US — the US economy would trudge along as usual, barely batting an eyelash, because the naked guy is still somewhere outside.

Canada would be stuck with the task of covering its indecent economic exposure.

Now let’s turn the attention to the other side of the Atlantic, where everyone seems to have turned their attention. And for good reason …

Greece is naked. And they’re howling in the living rooms of the Eurozone members. Of course, some members are howling the same tune; but others are just suffering through a bunch of fully-exposed dogs knocking over their end tables and tearing up their couches.

Unfortunately, they’re forced to deal with it; they’re all forced to deal with it; they’ve got to open their doors, to reach into their own wardrobes.

From Morgan Stanley …

What’s new: The outcome of the teleconference among the euro area finance ministers (i.e., the Eurogroup), together with the ECB and the European Commission, is that Greece will get up to €30 billion in the first year from the euro area countries alone, if it asks for financial help. The IMF’s contribution is unclear at this stage, but it was once again mentioned that the split two-thirds from the euro area governments and one-third from the IMF is a "correct order of magnitude".

I emphasize the small piece in bold. It basically means the pieces are in place, and if Greece starts howling any louder the rest of the pack will need to cover them.

How much the €30 billion in available loans will impact other Eurozone member countries remains to be seen. But since things are largely challenging across the system, it’s a good bet they all could do without the forced giving.

For instance, Morgan Stanley has upped the ante on their bearish forecast for Spain. The housing market is expected to experience further downside adjustment; employment will remain a problem for longer; GDP will remain in the red through 2010; loan growth has been hit extremely hard and is likely to follow the trend lower.